FINLAND - The solvency levels of Finnish pension insurance companies were significantly boosted in the third quarter of this year as a result of improved investment returns, much like those enjoyed among pension funds across Europe.
At the end of the third quarter, the solvency margin was 21.8% of the regulated technical provision, compared with 15.3% at the end of 2008, and this was boosted by the temporary measures put in place following the financial crisis.
Some Finnish providers pointed out in Q3 2009 that they have benefited from recent gains in the investment market. Providers such as Veritas claimed they would have fared well without the benefits of the regulatory relaxation on investments although all pension funds ought to keep a close eye on their solvency levels while conditions are still volatile, according to Varma. (See earlier IPE stories: Veritas CIO claims the crisis is over and Varma posts 10.8% return year-to-date)
Rules around the Finnish pensions solvency level were altered last year, when investments markets collapsed, and pension officials were given access to buffer funds - a move which took some of the pressure out the investment process for many Finnish pension providers during the crisis as it allowed them to continue to hold onto riskier assets rather than being forced to sell them. (See earlier IPE story: Finnish funds prepare for relaxed solvency rules)
As a result of the recession and financial crisis, a temporary act on solvency regulation was put in place last year. This lowered the minimum solvency requirement and introduced a fixed percentage level for it. Under this temporary measure, the minimum solvency level does not depend on the risk level of investments and part of the clearing reserve can be calculated as part of the solvency margin.
The Finnish supervisor, Finanssivalvonta, said solvency levels have now increased both in euro terms as well as relative to technical provisions. The total Finnish solvency margin totalled €13.4bn by the end of Q3 while total assets in the pension sector amounted to €75.2bn.
The capital adequacy of the Finnish banking and insurance sector, in general, strengthened in the third quarter, enabling companies to better withstand losses despite the recession. The banking sector's capital adequacy ratio continued to improve in the third quarter, despite increased credit losses. By the end of September, capital adequacy for the sector as a whole was 14.4%, compared with 13.6% at the end of 2008 and 13.7% at the end of June 2009.
Life insurance companies' total solvency margin increased by 57%, up to €4.2bn, from the beginning of 2009 and the solvency margins of non-life insurance companies also continued to grow. Their total solvency margin amounted to €2.4bn. This represents an increase of 20% since the end of June.